People who want to start spread betting with IG or any other company on stocks and shares will need to understand the basic principles behind spread betting and the techniques that traders use to predict whether a stock will increase or decrease in value.

Spread betting is an alternative to the traditional method of seeking to profit from the movement of share prices by buying individual shares. Instead of purchasing a share you wager a certain amount of money on whether the share will increase or decrease in value and by how much. If you bet £100 per point on a share increasing in value over 325p and it increases by 25 points to 350p then you will receive £2,500. If, on the other hand, the share falls by 50 points to 275p then you will lose £5,000.

Due to the ease with which you can lose large sums of money while spread betting it is very important to set stop-losses in order to close your position automatically when a stock reaches a certain price in the opposite direction to the one you predicted.

If you are to be successful then you will need to be able to predict which way a stock is going to go. There are two main approaches to predicting the future of a share price. Firstly there is technical analysis and secondly there is fundamental analysis.

Technical analysis uses previous trends in the stock's price to predict what will happen in the future. Typically these trends are represented as graphs. Graphs used for this purpose will show not only the variation of the price against time but also the volume of trading at each price level. Technical analysts look for common repeating patterns in graphs and compare them with the recent history of the share price.

Fundamental analysis by contrast seeks to arrive at a conclusion of whether a share is over or undervalued based on the fundamentals of the company that the share is in. Fundamental analysts will look at data like the company's accounts, announcements from the board about future direction and general information about the market in which the company operates.

Most traders will use a mixture of the two techniques, keeping an eye on press releases and announcements as well as poring over graphs, in order to get the best possible chance of guessing the future correctly. Given the risks involved in spread betting it's worth doing as much homework as you can before taking the plunge.

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